Medicare Australia: Medicare Levy & Medicare levy Surcharge Explained

The Medicare levy and Medicare levy surcharge; why do both exist and what is the difference? Much of this information is sourced directly from the ATO to ensure it is up to date and accurate. You can use our Income Tax Calculator to calculate how much you have you have to pay for the Medicare Levy.

Why does the Medicare Levy exist?

Medicare is the scheme that gives Australian residents access to health care. To help fund the scheme, most taxpayers pay a Medicare levy of 1.5% of their taxable income.

Does everyone have to pay the Medicare Levy?

Your Medicare levy is reduced if your income is below a certain threshold. For 2009-10, your levy is reduced if your taxable income is $21,750 or less, and you don't have to pay the levy at all if your taxable income is $18,488 or less. The thresholds are higher for seniors. If your income is above the thresholds, you may still qualify for a reduction based on your family taxable income.

What is the Medicare Levy Surcharge?

The Medicare Levy surcharge is in addition to the 1.5% Medicare levy. The Medicare levy surcharge is 1% of:

  • your taxable income (can include investment income)
  • your reportable fringe benefits, and
  • any amount on which family trust distribution tax has been paid.

Who has to pay the Medicare Levy Surcharge?

You have to pay the Medicare Levy Surcharge if your income is above a certain threshold and you - or any of your dependants - don't have appropriate private patient hospital cover. In 2009-10 the surcharge may apply if your income for Medicare Levy Surcharge purposes is more than:

  • $73,000 for a single person with no dependants
  • $146,000 for a couple with no children or one dependent child, plus $1,500 for each additional dependent child.

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Why does the Medicare Levy Surcharge Exist?

The Medicare Levy Surcharge exists because the ATO tries to be a little fairer when raising revenue to fund the Medicare scheme and so it takes a higher percentage from those who earn a higher income. This is just like the percentage increases in the marginal tax rates for individuals.

They are then a little kinder to the higher income earners by saying that if you do have a high income and have private health insurance you don’t need to pay the surcharge because in the event that you get sick the private health insurance company will fund some of the costs instead of the Medicare system.

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